duration%20DQ

Duration20dq

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Unformatted text preview: Session 5: Duration A. Duration is the weighted average time for investors to recover the cost of their investment from the cash flows of the investment. The weight attached to each cash flow is defined as the present value of the cash flow divided by the cost. The time attached to each cash flow is defined as the time period when the cash flow is received. B. Answers: Coupon rate 10% 12% 14% 16% 18% 20% Duration 1.8684 1.8473 1.8276 1.8091 1.7918 1.7754 Years to maturity 2 4 6 8 10 12 Duration 1.8684 3.4483 4.8175 6.0257 7.1066 8.0833 YTM 5 7 9 11 13 15 Duration 1.8684 1.8657 1.8630 1.8602 1.8575 1.8547 Relationship betw een Duration & Coupon Rate: 2-year bond w ith yield of 5% 1.88 00 1.84 00 1.82 00 1.80 00 1.78 00 1.76 00 8% 10% 12% 14 % 16% 18 % 2 0% 22 % Coupon Rate Re lations hip be tw e e n Duration & M aturity - 10% coupon bond w ith yie ld of 5% 10.0000 Duration 8.0000 6.0000 4.0000 2.0000 0.0000 0 2 4 6 8 10 12 14 15 17 Ye ars to M aturity Re lations hip be tw e e n Duration & Yie ld - 2-ye ar 10% coupon bond 1.8700 1.8650...
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